So far, the individuals of the 27 countries of the European Union have enjoyed the advantages of the low-value and middle-value rules for imported goods, where e- commerce purchases from Third Countries (e.gr China or United States) to the European Union –the so called B2C system- paid absolutely no tax if the value of the packet is under EUR 22 and only paid for the VAT (no duties) when the value of the packet was between EUR 22.01 and EUR 150. This system –especially for those packets under EUR 22- is very easy, fast and cheap.
The duties are an EU tax, that is, it is collected by the Government of the European Union, the so called European Commission. In turn, the VAT is a national tax, that is, it is collected by the countries and not by the European Union.
However, EU Tax Department considers this B2C system is unfair, since the local stores and shops here need to pay for duties and VAT when they import goods, and they need to sell their products including VAT, while the imports of the same products through the B2C channel pay absolutely no tax. Besides, the National Tax Departments of the 27 countries are getting no VAT income from these imports and the number of these packets has increased exponentially, year after year, since 2011.
Nonetheless, the EU Authorities understand that e-commerce has many advantages for the citizens of the EU, so they have launched a new rule – Directive 2017/2455 – that amends the general VAT law – the Directive 2006/112/CE. This new rule is in the middle way: it makes all imports pay for the VAT but it has very easy procedures for tax payment and control.
The low-value clearance will disappear on 30 June 2021
This means that absolutely all e-commerce goods will pay for VAT, even if their declared value was EUR 0.01, as from 1st January 2021. There will be no exceptions and absolutely all EU countries will have to put this in practice on the same day. This rule is called IOSS and applies only for goods with an FOB value up to EUR 150, which comply with B2C conditions. Those goods with FOB value over EUR 150 will need a full customs clearance.
Those Third-Country-Sellers will have to do their sales including the individual VAT rate of the country of destination, that is, for example, if one product is sold to a customer in Spain, the invoice will have to include 21% of VAT, while if the same product is sold to a customer in Sweden, the invoice will have to include 25% of VAT.
There is an exception to the above: if the Third-Country-seller sells products with a reduced VAT rate (e.gr, books in Spain stand only 4% of VAT, while general VAT rate is 21%), that Third-Country-seller of books may sell his books through IOSS with the reduced rate of VAT (e.gr, 4%), but in turn, the customs broker will need to include the exact HS code for those books, the generic e-commerce HS code will not be valid for books any more. However, if the book seller decides to sell his books through IOSS, he may sell his books with the general VAT rate of 21% and declare the generic HS code. This way, if a product enjoys a reduced VAT rate, it is an option to charge it, not an obligation.
The market place or Third-Country-seller will have to do monthly VAT declarations
As explained before, since it will be mandatory to issue all invoices including the VAT of the country of the customer, either the market place or the Third-Country-seller will collect that VAT from the customer, so he will need to reimburse this VAT to the Tax Departments of the individual countries.
According to IOSS system, the one who issues the invoice is the one who will collect the VAT from the final customer, so the market place or the Third-Country-seller may do the monthly VAT declarations by himself or he may appoint an Intermediary to do that job in his name. No matter if he does it by himself or if he appoints an Intermediary, he will have to choose one country –the so called Member State of Identification- to do a monthly declaration for his sales to all the 27 MS of the EU of the previous month.
That is, for example, if he chose Spain as his Member State of Identification to present the monthly declarations, then at the end of February he must present to the Spanish Tax Authorities a report with all the sales of January, with the detail of all the sales he did to customers of the 27 countries of the EU: Spain, France, Germany, Malta, Slovenia…
The report must include a separate line per country that will say the total sales for that country with no taxes, and a new column, with the value of the total VAT of that individual country. At the end of that report, there will be a cell with the sum of the VAT per individual country. Then the report will include a very last cell with the total sum of the whole VAT collected from the whole Member States of the EU.
Then, at the end of August, the market place, the seller, or his intermediary will have to reimburse to the Tax Authorities of that Member state of identification (in our example, to the Tax Authorities of Spain) that total sum of money of that very last cell, so the Tax Authorities of Spain will then reimburse the VAT that corresponds to sales in France to the Tax Authorities of France, or will reimburse the VAT of sales in Germany to the Tax Authorities of Germany…. And so on and so on.
If there were mistakes or corrections to the sums of July that were not declared in the report presented at the end of August, they need to be done in the next report, that is, they will be done in the report of sales of August, which will be presented at the end of September.
When the market place or the Third-Country seller chooses a Member State of identification, he must stand that decision for that year and the next two following years. If the market place or the Third-Country-seller chooses to be represented by an Intermediary, it is mandatory they only have one single Intermediary for the whole EU, that is, they cannot have an Intermediary in Spain and a different one in Germany, but only one in Spain who will present the declarations for all the sales in the EU.
Under-declared values and fraud
So far, it is very common the Third-Country-sellers present values below the real sales values, normally, they present values under EUR 22 to go below the burden of low value, so that there are no duties and no VAT involved.
In 2021, with the new law, all packets will have to pay for VAT, no matter the value it has. Tax Authorities have reported they will be very strict with the accomplishment of the declared values and they will put in charge cross-checking controls to discover those sales that were declared below the real selling value. Today, they have tools to discover that fraud and this is one of the reasons to be excluded from IOSS system.
This way, market places and Third-Country-sellers must pay big attention on this and declare the right values in order to avoid fines and to avoid being excluded from IOSS system. DDU system will be very difficult to be developed, so the only true option will be to adopt the IOSS system.
Cacesa has applied for Intermediary license, based in Spain, to take care of your VAT declarations.
Up to 2020 there are many local players doing handling and B2C customs locally. From July 2021, with the new VAT context in the European Union, and especially after coronavirus crisis, it is the time for global players who give global solutions for global customers, so Cacesa may offer you the solutions you need.
© Rodrigo Peñas – Commercial and Operations Director